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Poet, LLC v. Nelson Engineering, Inc.

United States District Court, D. South Dakota, Southern Division

February 7, 2018

POET, LLC and POET RESEARCH, INC., Plaintiffs,
v.
NELSON ENGINEERING, INC. and JERRY BAKER, Defendants.

          MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS COUNTS I, II AND III OF THE AMENDED COUNTERCLAIM

          Lawrence L. Piersol United States District Judge

         Plaintiffs filed a four-count complaint against Defendants alleging misappropriation of trade secrets under federal law, misappropriation of trade secrets under state law, breach of confidentiality agreement by defendant Jerry Baker, and tortious interference with contract by defendant Nelson Engineering, Inc. (Doc. 1.) Defendants filed an amended counterclaim against Plaintiffs for defamation, tortious interference with business relationships, tortious interference with contractual rights and declaratory relief. (Doc. 21.)

         Plaintiffs moved to dismiss three counts of Defendants' amended counterclaim for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. 27.) The motion has been fully briefed. For the following reasons, Plaintiffs' motion to dismiss will be denied.

         BACKGROUND

         The facts will be stated in the light most favorable to Defendants, the non-moving parties. Plaintiffs, POET, LLC and POET Research, Inc. (POET), are involved with ethanol production. Defendant Nelson Engineering, Inc. (Nelson) is involved in certain aspects of the ethanol industry as a consulting engineering company. From 2004 to 2008, defendant Jerry Baker (Baker) was employed by POET Plant Management, f/k/a Broin Companies. Baker signed a non-disclosure, or confidentiality, agreement with POET Plant Management.

         While Baker was working as an engineering manager for POET, POET began using technology called "Delayed Dilution Technology" (DD) in its ethanol plants.

         POET claims that its DD technology is a confidential trade secret.

         Baker left POET and, after complying with his two-year non-competition agreement with POET, he went to work for Nelson in 2010. Baker and Nelson developed a technology called "Hydrolysis Utilization" ("HU"). POET asserts that HU technology is exactly like DD technology.

         Defendants assert that their HU technology is a confidential trade secret. Defendants disclosed the details of HU to Glacial Lakes Energy pursuant to a confidentiality and non-disclosure agreement (NDA) with Glacial Lakes. A former Glacial Lakes employee now works at a POET-affiliated ethanol plant. POET claims that the former Glacial Lakes employee told POET that Defendants' HU technology is the same as POET's DD technology. In count III of their amended counterclaim, Defendants allege that POET interfered with their rights under the Glacial Lakes confidentiality agreement by extracting information from the former Glacial Lakes employee about Defendants' protected HU technology. Doc. 21 ¶ 30.

         The day after POET filed this lawsuit against Defendants for misappropriation of trade secrets, POET published the following statement on its website:

POET yesterday filed a lawsuit in U.S. District Court of Sioux Falls, S.D. alleging that the Sioux Falls-based company Nelson Engineering has misappropriated POET's trade secrets. The lawsuit is captioned "POET, LLC and POET Research, Inc. v. Nelson Engineering and Jerry Baker, " Case No. CIV 17-4029.
The trade secret in question is known at POET as "Delayed Dilution, " a technology that allows POET to achieve increased ethanol production from each fermenter in the process.
"POET has invested significant time and money into developing proprietary technology and processes that contribute to our long-standing success as an industry leader, " said POET President and COO Jeff Lautt. "We will do whatever necessary to protect our intellectual property from unauthorized use by others."

Doc. 21 ¶ 3. Count I of Defendants' amended counterclaim is a defamation claim based on POET's website statement:

4. Separate and apart from merely stating the fact that a lawsuit has been filed, the above website statement, in particular the quotation from Mr. Lautt in the context of the preceding two paragraphs, states or implies that Defendants misappropriated or used without authorization POET's trade secrets, which statement or implication is untrue and damaging to Defendants' business reputation.
5. The above-quoted comments of POET's President and Chief Operating Officer, Jeff Lautt, state or imply that Defendants stole, misappropriated, or used without authorization POET's proprietary technology, proprietary processes, or intellectual property, which comments and implication are untrue and injurious to Defendants' business or occupation.
6. Defendants' Hydrolysis Utilization technology ("HU") was developed wholly independently of POET's trade secrets or DD, and Defendants did not misappropriate or use POET's trade secrets or DD.
7. POET knows that DD technology is not novel, confidential, proprietary, or a trade secret, and POET knows Defendants did not misappropriate or use without authorization POET's trade secrets or DD, yet POET published the above website comments concerning Defendants for improper purposes, with malice, and in bad faith.
8. POET's website statements have damaged Defendants, Defendants' business reputations, and Defendants' relationships with customers and ...

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